Inflation woes grip Korean economy

Deputy Prime Minister and Finance Minister Hong Nam-ki. Korea Times file

Consumer prices jump at fastest pace in nearly 10 years

By Lee Kyung-min

The much-dreaded persistence of inflation is no longer transitory, as implied by statistics agency data which showed Korea's consumer price growth registering 3.7 percent year-on-year in November. It was the second monthly consecutive increase exceeding the psychologically significant 3 percent mark, up from 3.2 percent in October.

Statistics Korea data released on Thursday showed Korea registered its highest consumer price growth in nearly 10 years, since December 2011 when the figure was 4.2 percent.

The fast inflation growth was driven by global price surges in oil and agricultural, livestock and fisheries produce as well as electricity, water, gas and housing costs. The government lowered the fuel tax by as much as 20 percent but it had little impact, as evidenced by a 35.5 percent rise in fuel-related goods.

The prices of 141 frequently purchased goods and services registered an average year-on-year increase of 5.2 percent. The jump in the key goods and services prices is the highest since August 2011 when it soared to 5.2 percent.

The Bank of Korea (BOK) said this year's annual consumer price growth would exceed 2.3 percent, a figure already revised upward in November.

"November's year-on-year inflation of 3.7 percent slightly exceeded the level expected in our previous estimate," it said in an off-schedule press release earlier in the day.

Seoul National University economist Lee In-ho said the recent fears of further spread of the virus brought on by the emergence of the Omicron variant will become a major downside risk to the economy, highly likely to be manifested in job losses and a further rise in inflation.

"The economy is still reeling from the pandemic. The new variant is indicative of how hard the full containment will become, putting greater strain on the hardest-hit income group and industries for months on end," he said. "The much-needed recovery will become even more elusive, once the new variant begins disrupting global supply chains."

Sustained increases in the prices of goods and services will continue through well over next year, propped up by a spike in commodity prices susceptible to extreme uncertainties including geopolitical volatility and climate factors.

Further advancing the view is the Omicron variant of the coronavirus, the threat of which is still unclear and thus is impeding the recovery of global supply chains and consumption. The BOK's annual inflation target of 2 percent will not be achievable unless the year-on-year figure in December reports a figure far below 2 percent. Korea already registered cumulative inflation of 2.3 percent in the first 11 months.

The shared concern of strengthening inflationary pressure is expected to persist around the world, as judged by the U.S. Federal Reserve Chairman Jerome Powell who told Congress that "factors pushing inflation upward will linger well into next year," Tuesday (local time).

Deputy Prime Minister and Finance Minister Hong Nam-ki said the government will expand policy measures to bolster consumption and investment, backed further by swift execution of state-run projects for economic growth.

"Uncertainties have elevated due to global supply chain disruptions, an increase of breakthrough infections and concerns over the spread of the Omicron variant," he said at the ministerial-level meeting in Seoul. "The government will come up with measures to bring soaring prices under control to a level that lowers the public's cost of living burden."

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